Balancing Climate Adaptation and Development: Strategies for Food Security in Emerging Economies

The IMF paper explores the challenges emerging and developing economies face in balancing climate adaptation investments with broader development goals, highlighting the importance of trade openness, structural reforms, and efficient resource allocation to ensure food security. The study applies its model to Ghana, Egypt, and Brazil, offering strategies to mitigate climate risks and maintain agricultural productivity.

Research from IMF authored by Chen Chen, Koralai Kirabaeva, and Danchen Zhao from the IMF’s Fiscal Affairs Department and the Institute for Capacity Development, delves into the complex challenges faced by financially constrained governments in emerging and developing economies, particularly in balancing the critical need for climate adaptation investments with broader development goals. The research focuses on the agriculture sector, which is particularly vulnerable to the impacts of climate change, and underscores the necessity of investing in adaptation to ensure food security amidst increasing climate-related disruptions.

Climate Change's Impact on Agricultural Productivity

The paper highlights the stark reality that many emerging and developing economies face significant fiscal trade-offs when attempting to address climate change while also pursuing broader development objectives. Agriculture, being a vital sector for both economic growth and subsistence, is especially at risk, with climate change already contributing to a substantial loss in agricultural productivity. Empirical evidence cited in the paper points to a global reduction of 20 percent in agricultural productivity over the past 60 years due to climate change, with the losses in emerging and developing economies nearing 30 percent. Projections under a high-emission scenario indicate a potential additional decline of 16 percent in agricultural productivity in these regions by the 2080s.

The Diminishing Role of Trade in Climate Adaptation

The authors argue that while international trade can play a crucial role in alleviating the pressures on agricultural production by compensating for domestic shortfalls, the effectiveness of trade as an adaptive measure is significantly diminished in the face of trade fragmentation. Trade barriers and export restrictions not only undermine the ability of countries to import necessary food supplies during periods of domestic production shortages but also elevate the costs associated with adapting to climate change. This creates a vicious cycle where higher trade costs lead to greater food insecurity, necessitating even more substantial investments in climate adaptation to maintain food security.

A Model for Balancing Investment Strategies

To navigate these challenges, the paper presents a model that assists policymakers in identifying the most cost-efficient balance between investing in agricultural adaptation and broader development, particularly under conditions of limited financial resources and constrained trade opportunities. The model is applied to three countries, Ghana, Egypt, and Brazil which represent different levels of development, food security, and vulnerability to climate change. Despite their differences, all three countries share a common challenge: underinvestment in agriculture relative to the emerging market average, coupled with significant exposure to climate risks that threaten food security.

Country-Specific Climate Challenges

In Ghana, for example, the agricultural sector, which accounts for 20 percent of GDP and 40 percent of employment, is dominated by smallholder farms that are highly sensitive to climate variability. Climate change is expected to reduce yields in key crops such as cassava and corn, while also threatening the country’s cocoa production, a major export commodity. Similarly, Egypt’s agriculture, heavily reliant on the Nile River for irrigation, faces severe risks from rising temperatures, changing precipitation patterns, and sea level rise, particularly in the Nile Delta. As one of the world’s largest wheat importers, Egypt’s food security is further complicated by declining local wheat yields due to climate change. In Brazil, agriculture is a major contributor to GDP and exports, but the sector is threatened by rising temperatures and shifting rainfall patterns, which are projected to significantly reduce yields of key crops like soybeans and sugarcane.

The Importance of Structural Reforms and Trade Openness

The paper’s findings suggest that for countries with tight financing constraints, a balanced investment strategy that allocates resources between adaptation and development is essential for maintaining food security. Overinvesting in adaptation could be wasteful, diverting necessary funds from broader development needs, while underinvesting would result in higher overall costs when climate risks materialize. The authors argue that promoting trade openness and securing concessional financing for adaptation are critical strategies, particularly for lower-income countries. These measures can help countries tackle the challenges posed by climate change more effectively and ensure food security by reducing the need for large-scale adaptation investments.

Moreover, the research highlights the importance of domestic structural reforms in enhancing the efficiency of adaptation investments. Reforms that improve labor market flexibility, boost agricultural productivity, and enhance the efficiency of public spending on adaptation can significantly reduce the need for costly adaptation investments. The paper concludes that an integrated approach, which combines trade openness, targeted adaptation investments, and necessary structural reforms, is vital for countries to manage the impacts of climate change on agriculture and food security. This approach is particularly important for lower-income countries, where agriculture plays a central role in the economy and food security, and where financial and trade constraints make effective climate adaptation more challenging. The findings underscore the need for international cooperation to strengthen trade systems and mobilize finance for adaptation in the most vulnerable countries, ensuring global food security in the face of climate change.